Mortgage Debt Cancellation Relief
President Bush recently signed a bill into law that relieves homesellers who successfully sell their homes on a ’short sale’ from having to pay taxes on the portion of the debt that was forgiven by their lenders.
In the past, if a homeseller sold their property for less than what was owed and obtained forgiveness from their lender from having to pay the entire mortgage balance (referred to as a ’short sale’ in the real estate and lending communities), the amount of debt that was forgiven by the lender was considered income to the homeseller and they had to pay income taxes on that amount the next year.
The new law, which will be effective from 1/1/2007 through 12/31/2009, allows homesellers to avoid paying taxes on the forgiven amount of debt. There are restrictions and the attached summary does a good job of highlighting the new law. As always, you should consult with your tax or legal professional to see how you might be affected by this.
Tupper
